May 2 (Bloomberg) -- Malaysian Airline System Bhd. and
AirAsia Bhd.’s biggest shareholders plan to unwind a stake swap
following opposition from the state-backed carrier’s biggest
union, two people familiar with the matter said.

Malaysian Air’s board will meet to discuss the proposal
today, said the people, who declined to be identified as the
information is private. The carrier and AirAsia, the region’s
biggest discount airline, both halted trading in Kuala Lumpur
pending material announcements.

The two airlines still intend to cooperate in areas
including maintenance and pilot training, even as the cross-shareholding is abandoned, the Star reported today, citing
unidentified people. The share swap, involving stakes then worth
about $360 million, was agreed to in August as Malaysian Air
sought to pare costs following losses.

“The share swap alone will do little to help turn around
Malaysian Air,” Joshua CY Ng, an analyst at RHB Capital Bhd.
said in a report today. “As such, the unwinding of it should
also not inflict too much damage.”

Ng maintained his “underperform” rating and fair value of
1 ringgit. This implies the brokerage expects the stock to trade
more than 5 percentage points lower than the KLCI over the next
six to 12 months.

Job Fears

AirAsia’s largest shareholder Tune Air Sdn. agreed in
August to swap 10 percent of the budget airline for a 20.5
percent stake in Malaysian Air from state-controlled Khazanah
Nasional Bhd. The shares may be exchanged back at the original
price, one of the people said today.

Malaysian Air has dropped 29 percent since the deal was
announced on August 9, compared with a 6 percent decline in
AirAsia’s stock and a 6 percent gain in the benchmark FTSE Bursa
Malaysia KLCI Index.

Tony Fernandes, Tune’s biggest shareholder and AirAsia’s
chief executive officer, declined to comment in a text message.
Mohd Asuki Abas, a Khazanah spokesman said the company will
issue a statement later, without elaborating.

The 15,000-member Malaysia Airlines Employees’ Union has
met Prime Minister Najib Razak at least three times to seek a
reversal of the share swap because of concerns that cooperation
will result in job losses. The government has been preparing for
a possible early election in May or June, before the due date in
early 2013, according to four officials who spoke in March on
condition of anonymity because the talks are private.

“We are against the share swap and collaboration,” Alias
Aziz, the union’s president, said by phone yesterday. “The
collaboration will benefit AirAsia more than Malaysian Air
despite us having more experience in areas like catering,
maintenance and engineering.”

‘Quite Critical’

Malaysian Air’ condition is “quite critical,” Chairman Md
Nor Yusof said in a statement on March 16, after the airline
posted a net loss of 2.5 billion ringgit for last year, more
than twice the 1.21 billion ringgit average of 15 analyst
estimates compiled by Bloomberg. The carrier was considering all
options to strengthen its balance sheet urgently, he said.

This may include an Islamic bond issue, the two people
familiar with the matter said today.

Malaysian Air, based in Subang outside Kuala Lumpur,
expects another full-year loss in 2012 though will strive to
break even, Chief Executive Officer Ahmad Jauhari told reporters
on Feb. 29. The company expects to save 302 million ringgit this
year by paring flights to cities including Johannesburg and
Buenos Aires, he said.